Featured Product

    EBA Report Examines MREL Shortfall Among Banks in EU

    May 27, 2021

    EBA published the second quantitative report on minimum requirements for own funds and eligible liabilities (MREL) under the new methodology. The report aims to take stock of the increase in MREL capacity in EU‐27. It reflects the existing MREL policies applicable as at December 2019 and estimates the impact of the revised Bank Recovery and Resolution Directive (BRRD2) only for global systemically important institutions (G-SIIs) and top-tier banks via the subordination levels. The report shows that, as of December 2019, the largest institutions have made good progress in reducing MREL shortfalls and that smaller institutions tend to lag behind.

    The report shows that an estimated 80% of the domestic assets in EU are covered by a strategy other than liquidation—stable compared to 80% last year on a comparable basis. Although the level of covered assets remained stable on a yearly basis, the amount of decisions has increased and new decisions are expected to be issued in the near future. EBA received a total of 265 decisions relating to banks where resolution, by either a bail‐in or a transfer, would be favored rather than liquidation. This increase in the number of decisions reflects the continued progress by resolution authorities in agreeing on resolution strategies and setting MREL, but also highlights that more than six years after the adoption of BRRD, authorities are still in the process of rolling-out resolution strategies and MREL requirements.

    Out of the 265 decisions, 27 have been left out of the shortfall analysis on the basis of data quality issues. As at December 2019, out of the 238 resolution groups captured in this report, 111 EU resolution groups showed an MREL shortfall estimated at EUR 102 billion, down from EUR 172 billion as of December 2018. In terms of total assets, institutions with a shortfall represent about 28% of total domestic assets in EU. The report shows that MREL shortfall for EU G‐SIIs is down significantly to EUR 19 billion, with high levels of other marketable securities. The decrease in shortfall is less pronounced for other systemically important institutions (O‐SIIs) than for G‐SIIs, while high levels of other marketable securities are observable only for top-tier banks. The bulk of the decrease is due to G‐SIIs now exhibiting a shortfall of EUR 19 billion, compared to EUR 51 billion last year. The sharp decline reflects that, to some extent, G‐SIIs have been setting their requirements before other banks and that they are facing earlier end‐state dates for compliance in line with total loss absorbing capacity (TLAC). The shortfall for O‐SIIs is down from EUR 104 billion to EUR 64 billion. This is reflective of the effort by O‐SIIs in issuing MREL-eligible debt.

    The report is based on data as of December 31, 2019 provided by resolution authorities and covers the actual population of banks covered by an MREL decision, the actual level of this requirement, and the level of resources effectively eligible in the relevant jurisdictions. The report is intended to offer information on the resilience of the European banking system through loss‐absorbing capacity and to offer update on the progress of authorities in setting resolution strategies and MREL across EU. BRRD2 was adopted in July 2019 and resolution authorities have now started to take new decisions reflecting the revised framework. These decisions will be reported to EBA starting as of May 31, 2021 and EBA will update on the progress by year-end. This report will be updated annually, in line with the mandate in BRRD Article 45l(1). Going forward, EBA is also expected to examine the impact of MREL on profitability of banks, with EBA planning to deliver an impact assessment report to EC by December 2022. 

     

    Related Links

    Keywords: Europe, EU, Banking, MREL, BRRD, TLAC, BRRD, Regulatory Capital, Basel, Resolution Framework, Systemic Risk, EBA

    Featured Experts
    Related Articles
    News

    PRA and FPC Finalize Changes to Leverage Ratio Framework in UK

    The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA

    October 08, 2021 WebPage Regulatory News
    News

    CFPB Proposes Rule on Small Business Lending Data Collection

    The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.

    October 08, 2021 WebPage Regulatory News
    News

    PRA Decides to Maintain O-SII Buffers for Another Year

    The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.

    October 08, 2021 WebPage Regulatory News
    News

    FSB Report Assesses Implementation of Recommendations on Stablecoins

    The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.

    October 07, 2021 WebPage Regulatory News
    News

    APRA Updates Loan Serviceability Expectations for Home Lending

    In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.

    October 06, 2021 WebPage Regulatory News
    News

    CPMI and IOSCO Consult on Guidance on Stablecoin Arrangements

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.

    October 06, 2021 WebPage Regulatory News
    News

    EBA and EIOPA Set Out Work Priorities for 2022

    The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.

    October 05, 2021 WebPage Regulatory News
    News

    MFSA Issues Reporting Updates and Guidance for Banks

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.

    October 05, 2021 WebPage Regulatory News
    News

    EC Publishes Decision on List of Equivalent Third Countries Under CRR

    The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).

    October 04, 2021 WebPage Regulatory News
    News

    EC Rule on Contractual Recognition of Write-Down and Conversion Powers

    EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.

    October 04, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7552